Abstract
The managerial contractual form in China's township and village enterprise (TVE) sector has evolved rapidly during the past 10 years. Our paper uses descriptive data and a theoretical model to demonstrate that these changes may be occurring in response to the rapid development of markets in transitional rural China. We econometrically test the model's main hypotheses, showing that the driving force behind the movement from a leader-run fixed-wage contract to a fixed-payment contract with better incentives for the manager is the relative value of non-marketed inputs owned by local leaders and firm managers. Firm technical structure and local market setting also plays a role in the determination of firm contractual form.
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